Ex-JPMorgan traders urged to surrender on whale case charges

U.S. prosecutors urged former London-based JPMorgan Chase & Co. traders Javier Martin-Artajo and Julien Grout to surrender and face charges that they attempted to hide trading losses tied to the bank’s $6.2 billion loss on derivatives bets last year.

Martin-Artajo, a Spanish citizen, and Grout, a French citizen, should “do the right thing,” Manhattan U.S. Attorney Preet Bharara said at a press conference yesterday. Both men face as long as 20 years in prison if convicted of the most serious counts, including conspiracy and wire fraud.

While Bharara said he was “hopeful” they would return, he had arrest warrants filed under seal along with criminal complaints Aug. 9, according to court records. The warrants were to be served on the State Department, Interpol and foreign law enforcement agencies. The next day, police showed up at Grout’s London home, according to a person with knowledge of the matter. Grout wasn’t there. His lawyers have said he’s in France.

Martin-Artajo oversaw trading strategy for the synthetic portfolio at JPMorgan’s chief investment office in London, while Grout was a trader who worked for him. They are charged with conspiring to falsify securities filings from March to May of 2012. The U.S. sought to keep the charges secret while arrests were attempted, but eventually had them unsealed yesterday.

JPMorgan Chief Executive Officer Jamie Dimon characterized the $6.2 billion loss as “the stupidest and most embarrassing situation I have ever been a part of.” First disclosed in May 2012, the bad bets led to an earnings restatement, a U.S. Senate subcommittee hearing and probes by the Securities and Exchange Commission and U.K. Financial Conduct Authority.

‘Pressure’

U.S. investigators said their probe is continuing, alluding to “pressure from above” the defendants at the bank, and what one of the two traders claimed was direction from superiors in New York to stem the losses, according to court papers.

Dimon, 57, whose own pay was cut in half, pushed out senior executives including former Chief Investment Officer Ina Drew, who oversaw the London unit where the loss took place. The bank said it clawed back more than $100 million in pay from employees who were involved with, or oversaw, the trade.

Bruno Iksil, the Frenchman at the center of the case who became known as the “London Whale” because his portfolio was so large, signed a non-prosecution agreement with the U.S. in June, the government said. He pledged to cooperate with investigators as part of the deal.

Tempest, Teapot

“This was not a tempest in a teapot but rather a perfect storm of individual misconduct and inadequate internal controls,” Bharara said, referring to Dimon’s April 13, 2012, statement dismissing reports about the unit’s losses. “The defendants deliberately and repeatedly lied about the fair value of billions of dollars in assets on JPMorgan’s books in order to cover up massive losses that mounted month after month at the beginning of 2012.”

Bharara said it was extremely rare for his office to give someone like Iksil a non-prosecution agreement, and that a number of factors went into the decision, including his “relative culpability” and the degree of his cooperation.

“I don’t think you could call him blameless, but he did sound the alarm more than once,” Bharara said.

Bharara said that the complexity of the financial instruments the two defendants were working on didn’t excuse their behavior.

“The difficulty inherent in precisely valuing certain kinds of financial positions does not give people a license to lie or mislead or cover up losses,” he said. “And it goes double for handsomely paid executives at a public company whose actions can roil markets and upend the economy.”